Calculator assesses total deal, including fees
When you need a mortgage — whether to buy a house or refinance — what do you do? More than likely you jump online and check out competing quotes on sites that let you compare multiple offers, including interest rates, annual percentage rates and monthly payments.
That’s smart, but there’s a problem. From the information presented, you often don’t know enough about how much competing lenders intend to charge you in loan fees — origination, underwriting, processing and various others including so-called garbage fees — until you actually apply and see your good-faith estimate several days later.
These fees are supposed to be woven into the APR. But sometimes differences in APRs that appear trivial — a few decimal points — can significantly affect your payments over time. Worse yet, you usually don’t know how these fees will affect your total payouts during the period of time you’re likely to retain the loan.
So even though you think you’re picking the right mortgage, you end up with one costing you thousands of dollars more.
But now there’s a way to squeeze more information out of what’s displayed online before handing over your Social Security number, property information and credit details. Best of all, it’s free and has no commercial ties to banks, investors or any other lenders.
It’s a new loan-shopping utility that uses algorithms to “see through” the typical rate, APR and monthly payment quotes online. It discloses the amounts of fees rolled into the quote package and what they mean to you in terms of total payouts during the time you expect to keep the mortgage.
It’s called My Loan Cost Calculator from Loantech (www.loantech.com). Here’s how it works.
Say you’re shopping for a $300,000 fixed-rate 30-year mortgage. You have three competing offers from lenders online that look good: Lender A is offering 4 percent, a monthly payment of $1,432 and an APR of 4.055 percent. Lender B is offering the same 4 percent rate and a $1,432 monthly payment with an APR of 4.191 percent. Lender C quotes 3.875 percent with a $1,411 monthly payment and an APR of 4.042 percent. These are actual quotes of lenders recently pulled off the HSH.com mortgage site.
The payments and rates are identical from two of the three, and the APRs don’t look all that far apart. Which deal is best?
It depends on your main objective. Are you trying to:
Minimize total monthly payments over time?
Minimize lender loan fees and charges? Maximize principal payoff? Minimize total interest and fees?
Let’s say you want to pay the least in total interest and fees during the next 10 years. According to the Loantech calculator, Lender B shouldn’t be your choice. It plans to bludgeon you with $6,803 in loanrelated fees compared with Lender A’s more consumerfriendly $1,983.
The key tipoff is the APR differential. But who knows how much of a rip-off in dollars is involved over a specific time period? That’s hidden.
David I. Ginsburg, who owns Loantech, said he created the algorithms that run the calculator to remedy a major drawback in most online mortgage quotes: “Until now,” he said, “there was no easy way” for loan shoppers to pierce the APR curtain to determine the amount of loan fees that lenders were tacking onto deals.
Now there is.
Kenneth R. Harney covers housing issues on Capitol Hill for the Washington Post Writers Group. You can write to him at P.O. Box 15281, Chevy Chase, MD 20815 or send email.